home constructed cost basis w/o receipts

[fireman0175]

Hello,

I took out a 31 year single construction to 30-yr mortgage to build my primary residence.  I was able to take money out to pay bills for the construction, paying only interest.  I ended up with a final balance that was now a interest and primary 30 year loan.  Same Note. 

I have lived in it for over 3 years and know I qualify for the $500k capital gains deduction.  I didn't keep receipts well.  I have read where one way to determine my cost basis is if I had a loan to buy the house, that would be the cost basis plus improvements.  So, would I be able to use the first mortgage (construction to fixed mortgage) loan as that cost basis?  I do I have to come up with reciepts or examples of FMV for parts of the construction?

Thank you!

[DaveF1006]

It's flimsy evidence but if the entire first loan was used exclusively for the construction of the loan, then you could use this as a basis if you have no other receipts. If the IRS decides to examine your return, the loan details may or may not be sufficient to offer as a basis, but these types of audits are rare at best.

Many taxpayers do not have specific information in estimating the basis of their house but rely on reasonable assumptions to make this determination. 

[fireman0175]

Thanks DaveF1006 for your kind answer.  I looked back in my records and found my bank had an appraisal done on the construction project.  It allowed the bank to determine what the completed home would be valued at.  I think this would be more acceptable to the IRS as a cost basis since it was done at the time of construction and reflects the value at that date.  Would this be a better choice?

Thank you in advance.

[DMarkM1]

An appraisal done at the purchase would be a great document to support the cost basis of the property.

[AmeliesUncle]

If your gain is not anywhere near $500,000, don't worry about it.  The $500,000 exclusion will cover it.

If your gain may be higher than that, an appraisal may not work.  That just shows the value of the home, but because you constructed it, your cost could be noticeably lower than the appraised value.

[fireman0175]

My gain will be about $600,000.  If an appraisal may not work and the mortgage/loan may not work, what exactly would work if I do not have all the receipts?  Not knowing, many subs were paid cash as that is what they preferred.  So, in order come up with a cost basis for my new home (at the time) what would be acceptable to the IRS?  That's all I got...

Thanks much in advance.

[Vanessa A]

Contracts from the builder or builders would work best. You can also possibly get the closing information from a title company or contact the recorders office at your local courthouse to see which information was recorded for price.  However, if you cannot get any of this or receipts, you will need to use what you have, which would be the original loan information. 

Basically, the more documentation you have the better, but if you do not have it, the loan information will do. You cannot create information you do not have.